Cash flow is the money you bring into your business (your cash inflows) and the money you spend on expenses (your outflows). 

If your business is soaring and you make more than you spend, you’re doing something right. On the other hand, if you struggle to balance your cash inflows and outflows, you may need to make some adjustments.

To show you how to improve your cash flow, this guide covers:

  • Why cash flow is important
  • The difference between positive and negative cash flow
  • How to optimise your business operations for better cash flow
  • How to improve cash flow using customer incentives
  • How to streamline your invoicing and financial management
  • …and more!

Join us and explore our eight favourite tips to help you improve your cash flow and how Counting helps business owners manage their finances efficiently.

Why is cash flow so important?

Managing your cash flow efficiently helps keep your business afloat and increases your chances of generating positive cash flow. 

What is the difference between positive cash flow and negative cash flow?

Positive cash flow is when your business has more money coming in than going out. You can cover expenses like rent, taxes, and other variable costs like new stock. In time, positive cash flow may enable you to expand your business. 

On the other hand, negative cash flow means that you spend more money than you make. Negative cash flow becomes a problem if it continues for an extended time. You’ll eventually start eating into any reserve funds you have and may even need to close up shop. 

How to improve your cash flow

If you want to optimise your business operations to increase your profitability, here are our best tips on how to improve your cash flow:

1) Consider leasing instead of buying

It may seem counterintuitive to lease supplies and equipment since leasing usually ends up costing more than buying. However, unless your business is highly prosperous, you’ll want to maintain a steady cash stream for daily operations. 

Leasing means you pay in small increments, which helps improve cash flow since it balances your inflows and outflows. Lease payments are also a business expense, meaning you can write them off on your taxes. 

2) Send invoices out right away

Your sales and invoices are the lifeblood of your business since you can’t get paid if you don’t bill your customers.

Make sure you stay on top of your invoices and send them out as early as possible. The quicker you send your invoices, the faster your customers can pay them. Consider switching to a cloud-based accounting system to streamline your invoicing process. 

3) Incentivise customers to pay on time

As well as sending your invoices out promptly, you want to ensure your customers pay you as quickly as possible. Getting clients to settle invoices instantly is easier said than done, but there are a few ways you can encourage them to pay you quickly. For example:

  • Follow up with invoice reminders
  • Offer a small discount for paying early
  • Charge a penalty for late payments

4) Try increasing your prices

Understandably, increasing your prices can feel scary since it could lead to reduced sales. However, setting your prices too low can also make you seem less qualified or suggest your products are low-quality. As a result, your customers may shy away. 

You want to strike a perfect balance between keeping competitive prices and compensating for your hard work. At the end of the day, you want to get enough sales to ultimately make a profit. There’s no way to know what increasing your prices will do for your business unless you try.

5) Optimise your inventory

Another way to improve your cash flow is to take a look at your inventory. Make a list of the goods you buy and compare them to your sales. Do all your products sell well enough to keep investing in them?

If you spot any products or services that don’t perform well, try selling them at a discount to push sales. If this method doesn’t work, consider removing the products altogether. It’s not worth spending money on products that don’t sell. Focus on improving your cash flow instead. 

6) Create a new marketing strategy

Are you struggling to acquire new clients even after optimising your products or services? Then you may need to rethink your marketing tactics. Consider how you can get the word out about your business. 

Content marketing is an excellent tactic because it pulls in 3x as much organic traffic and costs 62% less than native or traditional advertising. You can use your social media platforms to share new content and engage with your followers to form a connection. 

You should also make sure your website is easy to navigate and clearly shows what you offer. Consider hiring a web designer and copywriter to ensure your site is well planned, SEO optimised and reads well. 

7) Reevaluate your operating expenses

Learning how to improve your cash flow isn’t just about bringing in more money but also about minimising how much you spend on expenses. 

Take a look at your current expenses and evaluate if it’s worth paying for them all. Cut out any unnecessary costs to minimise your cash outflow as much as you can. While it may seem difficult, you’ll feel better knowing you can manage your cash flow effectively. 

If you can’t afford to cut any of your costs, maybe take out a small business loan to tide you over until business picks up?

8) Improve your operating process

It’s also vital to make sure your business runs as efficiently as possible. Take a look at your existing business operations to determine if you need to update them to run smoother.

The Countingup business current account provides real-time insights into your cash flow management so you can look after your finances more efficiently. Receive profit and loss reports, tax estimates and unpaid invoices directly to the app on your phone to keep your business running smoothly. Apply for your business account online in minutes and for free here.